News Column

California Considers Oil Tax to Fund Schools

May 20, 2013
Oil drilling

Just months after California voters passed Proposition 30 to stave off education cuts, a push is under way to ensure that the next stream of higher education funding flows out of the ground.

The idea of an oil severance tax has been bubbling for years, but proponents have been unable to surmount intense lobbying from the energy industry.

That hasn't deterred a state senator from coming up with a bill and a University of California, Berkeley, undergraduate from circulating a ballot initiative, both of which would impose a tax on the resources that energy companies draw out of the earth and direct the windfall to California colleges.

A key difference this time around is the legislative supermajority that will allow Democrats to pass new taxes without a single Republican vote, assuming Democrats vote as a unified caucus.

"Now there's an opportunity for us to be able to pass the kind of tax revenue that we've wanted to," said Sen. Noreen Evans, D-Santa Rosa, whose Senate Bill 241 would impose a tax on harvesting oil and gas.

Evans hopes to replicate the winning strategy adopted by Proposition 30 backers, framing her bill in terms of its impact on students. Her office recruited the University of California Student Association and the California State Student Association as sponsors, and students have appeared at bill hearings to testify.

"While I don't think it gives the environment as much money as I would like, it's smart to find other powerful interests who could use" the additional funds and have an incentive to get involved, said Kathryn Phillips, director of the Sierra Club of California.

Working in concert with the legislative push is Harrison "Jack" Tibbetts, a UC Berkeley junior who has written an oil severance tax ballot initiative and met with Evans to discuss it. The initiative is intended as a parallel effort, Tibbetts said, a tool to rally public support and serve as a fallback if the legislative route fails.

"Our campaign's proximate goal is to raise awareness in hopes of passing (Senate Bill) 241 through the Legislature," Tibbetts said. "But should it fail, students and youth groups are ready to organize and put a ballot initiative on the ballot for 2014."

One hurdle on the legislative route is that a bill would have to survive the governor's veto pen. It is budget season in Sacramento, and Gov. Jerry Brown has been able to tout Proposition 30's stabilizing effects. But the governor remains leery of additional new taxes and continues to emphasize restraint, reiterating his desire to enact new taxes only if they go before the voters.

"We just got a nice tax," Brown told reporters last week. "Fifty-five percent of the people voted for it, and I think we're going to take a deep breath and show how we're spending it in a wise way before we start looking around for more money."

Waiting on the periphery is Tom Steyer, a billionaire hedge fund manager turned environmentalist. He devoted much of his speech at the California Democratic Party convention in April to urge Democrats to rejoin the perennial fight for an oil tax, saying California is an environmental beacon on most issues but a laggard on taxing oil.

Steyer established his political clout with the success of Proposition 39, his ballot initiative to change how out-of-state corporations pay taxes in California and channel the revenue toward energy efficiency projects. But he has deferred to lawmakers on the oil severance tax, calling it a test of what Democrats can accomplish with their two-thirds majority.

"I absolutely believe that that's why we have a Legislature, is to make the laws," Steyer said. "So from my point of view, a ballot initiative is a distant second choice to letting the Legislature do what it was elected to do."

Lending a sense of urgency to the oil tax push is the prospect of an energy boom in the Monterey Shale, a vast formation stretching through Central and Southern California, estimated to contain 15 billion barrels of shale oil.

Energy companies have known for years that the resources are there, but have been unable to extract them. Even as the development of drilling techniques such as horizontal drilling and hydraulic fracturing, or fracking, has unleashed a gold rush in places like the Bakken formation in North Dakota, the geological complexity of the Monterey Shale continues to stymie the energy industry.

"Take a piece of tinfoil and spread it out flat," said David Christy, a spokesman for the U.S. Bureau of Land Management. "That's Bakken. Now take that piece of tinfoil and crinkle it into a wad. That's the California geology."

Nevertheless, interest in drilling in the Monterey Shale has been rising, according to Rock Zierman, chief executive officer of the California Independent Petroleum Association.

"No doubt about it," Zierman said. "You see a lot of leasing activity, you see exploratory wells, but we just haven't cracked the code."

Zierman and other industry advocates argue that, while California lacks a tax on oil extraction, energy companies do pay a bundle of other taxes and fees that amount to a significant burden.

One of those costs is a property tax assessment that takes into account the value of resources under a piece of land. Under the current system, that property tax rate rises only to reflect "proven resources" -- that is, energy that is both technologically viable and profitable to extract.

The Monterey reserves are not generally factored in to property taxes because they are difficult and expensive to tap. But if they become more accessible, changing the tax assessment of the land they sit on, that increased tax would be locked in and permitted to grow at no more than 2 percent a year, per Proposition 13.

Evans said her bill is in part a pre-emptive attempt to guarantee that, should energy companies unlock the secret to the shale, California gets a slice.

"California is poised to allow fracking on a monumental scale in the Monterey Shale," Evans said, "and if we don't enact an oil severance prior to the time we do that, then we're allowing ... California's resources to be extracted without taxing it."



Source: (c)2013 The Sacramento Bee (Sacramento, Calif.) Distributed by MCT Information Services


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